M&A Awards: Schermer leads Meritage through aggressive expansion, growth
BY SYDNEY SMITH
Sunday, October 13, 2019 10:56am
Meritage Hospitality Group Inc. CEO Robert Schermer, Jr. has led the company as it has amassed a portfolio of about 400 Wendy’s restaurant locations and grown its revenue to nearly half a billion dollars.
Today, Meritage has a market capitalization of $106 million and a total enterprise value of about $300 million.
The company is coming off a record 2018, when Meritage opened a new Wendy’s nearly every two-and-a-half weeks, said Schermer, the winner in the executive category in the 2019 MiBiz Dealmakers of the Year Awards.
For 2018, Meritage’s sales grew 39.3 percent to $453 million and earnings before interest, tax, depreciation and amortization (EBITDA) grew 50.3 percent to $39.7 million. The company developed or acquired 62 restaurants during 2018 and integrated 71 restaurants it acquired in the prior year.
As well, Meritage raised about $5.6 million in preferred stock sales to fund acquisitions, alongside $78.9 million in new long-term debt.
For 2019, the company has forecasted net earnings growth of 10-20 percent, with EBITDA growth in the 15-percent to 25-percent range. Meritage also expects “strong sales and earnings growth in 2020, driven by newly developed, reimagined and acquired Wendy’s restaurants coming online during the year.”
Under Schermer’s leadership, the company also continued its dealmaking strategy this year. That includes signing a “groundbreaking” agreement with the Wendy’s organization under which Meritage will receive significant economic incentives, including royalty and marketing fee relief, for its commitment to invest $100 million to develop 40 new restaurant locations by the end of 2024.
In August, the company also signed two definitive asset purchase agreements to acquire 10 Wendy’s restaurants located in Georgia and Texas that would add around $17.9 million of sales. Meritage followed up that deal in September of this year with another deal to add five additional Wendy’s restaurants in the Odessa and Midland area of Texas.
Another unique deal had Meritage completing the sale of a 756-acre piece of real estate in the Bahamas to Disney in March 2019. The company said the deal will generate cash flow for new restaurant development, acquisitions, dividend distributions and stock buy-backs.
Overall, Schermer credits his team at Meritage for the company’s growth trajectory, as the deals require analyzing many factors when deciding on a new location, including evaluating the condition of the stores and economics of the area, as well as the opportunities in that particular market to expand.
This was the case earlier this year in the pair of Texas deals, he said.
“They were financially good stores, in reasonable shape and there is a lot of growth opportunities in and around that market,” Schermer said.
Schermer acknowledges that Meritage must soon wrestle with a new growth-related challenge: Franchisees in Wendy’s system cannot exceed 400 restaurants, and Meritage plans to reach that number within 18-24 months. The company plans to sell in existing markets and acquire stores in underdeveloped markets, he said.
Meritage also could explore new concepts, including its new breakfast restaurant dubbed Morning Belle, for which the company is eyeing 35 stores by the end of 2025.
“That will be kind of the next chapter in Wendy’s, and we’re looking for other opportunities that don’t compete with Wendy’s,” Schermer said.
